What would Randy Udall say?

There has been considerable talk in the US of late about not only future energy exports but even about using an “energy weapon” against Russia. While that might be nice, it’s wishful thinking.

An energy commentator who thought in depth about the US’s energy policy back-story and the myth of oil independence was Randy Udall, who passed away suddenly in late June last year. On March 21, 2013, during one of his last presentations, Randy delivered some remarks, accompanying a set of power-point slides, which provide the type of cautionary background that Washington insiders—including his brother Senator Mark Udall and cousin Senator Tom Udall—should heed. His complete remarks, now posted on YouTube http://www.youtube.com/watch?v=H9ueBIxCb-g&feature=youtu.be , were recently transcribed by Steve Andrews; key points are listed below. The first remark about natural gas exports is actually a response to a question from the audience; the remainder is from his loosely scripted remarks. Clips are separated by (….) punctuation.

This meme that we’ve got a 100-year supply of natural gas started at the Colorado School of Mines. They have a volunteer group there called the Potential Gas Committee, but the Potential Gas Committee is not looking at proven reserves; they’re looking at how much carbon might there be in 5000 feet of the Mancos shale.

I look around and I start running the numbers. You know how much we’ve produced in this part of the world, in Weld County and Larimer County and the DJ Basin and the Wattenberg field we’ve been drilling for 80 years? Now, this field is primarily an oil field. But in that 80-year period of time we’ve produced enough natural gas to run the US for four months. In the Powder River Basin, with those 25,000 natural gas wells, we’ve produced enough natural gas to run the US for four or five months. When you look into it, there are only about six natural gas plays that are of any size; they’re dominated by three or four of the big ones—the Marcellus in Pennsylvania…maybe it will end up supplying five years’ of US gas demand over the next 60 or 70 years. The Barnett shale in Texas up to today has given us almost one year’s supply of US gas demand. So in talk of 100 years, I go…”dude, you promised me 100 and you shorted me 70.” When you look around you think, Piceance? We might get two or three years out of the Piceance over the next half century. I start trying to add it all up and the math doesn’t work for me.

So I think the Potential Gas Committee—John Curtis, who’s a very respected geologist there—is saying this hype has gotten way out of control because if you make energy policy based on the notion that you have 100 years’ supply of natural gas, enough to export…that’s kind of where this rubber hits the road, when we start telling ourselves a story that we have enough to export natural gas. I’m not convinced we enough that we should export any natural gas.

Shale hype and Progeria

There’s been an unbelievable amount of hype recently about America striding towards energy independence, and “all of the above”, and that we’re going to become the Saudi America of the world and that OPEC is doomed and that North America will soon be producing all of its own oil and natural gas. There’s a kernel of truth in that, surrounded by an enormous amount of hype and exaggeration and fantasy.

As it turns out, coal-bed methane, tight gas and shale gas have ridden to the rescue. Production of conventional gas has continued its decline even to today. We had lunch yesterday with a guy named Richard Nehring who has the best database of oil and gas fields in North America. He said the largest conventional gas fields we’re finding now each year are not big enough to meet the nation’s gas needs for more than eight hours. So you would need 40 of these fields to meet two weeks’ worth of gas demand in the U.S. So even as shale gas has come in and plugged this hole, our conventional gas continues to decline. Essentially, we’ve used it. And most of the unconventional gases—90% of them—could not be produced unless they’re fracked. Essentially we’ve tied the energy future of this industrial civilization to hydraulic fracturing whether you like it or not.

So here’s the bottom line: since 2008 the shale gas and tight oil production—the increases in these two things, when you convert it all to barrel-of-oil equivalents—is equal to about 4 million barrels of oil a day, just over the last five years. That’s more than two Prudhoe Bays. It’s the most rapid increase of energy production in American history. That’s why there’s been all this hype. That’s why there has been all this well-deserved celebration, in a sense.

If you go back even a little further, if you think where would America rank on the global energy production scale, just counting the oil and gas we were getting from shale formations and discounting all the conventional oil fields in the United States, and we just calculated what we’re producing today from wells we’ve drilled since the year 2000, the US would be the 14th largest oil producer on the planet and we would be the second-largest natural gas producer, just from the drilling we’ve done into shales in the last 12 years. So this shale production is a phenomenon, it’s a miracle, it’s entirely unexpected.

But the miracle has a flaw. The miracle is destined to be fleeting, particularly with respect to tight oil. What people aren’t talking about is this flaw. They’re not talking about this mirage-like nature of these wells.

What do I mean? There’s a rare disease that some young kids get; it’s called progeria. It’s a disease of accelerated aging. There are only a few cases a year on the planet. These wells, both the shale gas and tight oil wells, essentially have the same sort of disease of accelerated aging, accelerated depletion.

The Haynesville is a play in Louisiana that no one had heard about as recently as 2008. In a single period of three years, with about 2500 wells, the Haynesville formation was producing more natural gas than we do in Colorado. And we have 50,000 wells. So in three years they went from a dead stop to producing more natural gas than Colorado, Wyoming or New Mexico—three states that had been in the gas business for 50 years. This is a decline curve for the normal Haynesville well. Along the bottom these are not years, these are months. This is progeria, this is a well dying as its born, producing exuberantly for a period of some months but quickly abating and becoming uneconomic. A well like this will not have a lifetime of 30 years or 20 years or 15 years; it will have a lifetime of 7 or 8 years.
What Texas is doing right now, in terms of production, they need 800 drilling rigs to do it. And The New York Times is extolling what Texas is doing. Maybe it deserves to be extolled. But Kuwait can do the same thing with 35 drilling rigs. What the Saudis are doing with 50 wells—producing a billion barrels—will take 5000 wells here in Colorado to produce the same billion barrels. So “drill, baby, drill!” is no longer optional. “Drill, baby, drill!” is destiny. In a way it’s manifest destiny.

Manifest destiny was all about an arrow pointing west, channeling this enthusiasm in America to the west coast. But I argued in a recent Christian Science Monitor piece that I wrote that our compass bearing is not west, it’s down. We’ve essentially chained the energy future of this country of 300,000,000 people to a drilling rig and thrown away the key.

So what does the future hold?

We’re going to be drilling and fracking ad infinitum—probably a million more wells in the US by 2040.

There are going to be tighter regulations on fracking because what you could do in Wyoming isn’t going to play in Pennsylvania. We’ve already begun to see that here in Colorado—more push-back from Longmont and Lyons and Fort Collins and a number of communities beginning to push back against fracking.

Cheap gas? It won’t stay as cheap as it has been because it’s not economic, but cheap gas has created headwinds for coal and nuclear and to some degree wind and solar. It will save you some money.

Yellowstone National Park in the northwest corner of Wyoming is a huge national park, some two million acres. Well, Anadarko, Noble, Exxon, Encana and Williams have essentially leased three Yellowstones here in Colorado. And the 50,000 active wells we have in the state may double by 2025, as a rough guess.

And finally, what does nature want? I emailed my driller friend Charlie Brister once and I…asked Charlie what is it like drilling down into these formations where you’re dealing with temperatures 300, 400, 500, 600 degrees F and these enormous pressures—what is that like, jousting with Mother Nature. And he wrote back and said “Randy, when we talk about Mother Nature we’re not talking about a kindly grandmother but rather a moody capricious punk-rocker, someone we respect and fear.” And I think we’re beginning to see this woman is coming ashore. We’re encountering her now more frequently, in our extreme weather, in extreme droughts, the super storms, in floods, and extreme events of all kinds.

So thanks for your time tonight. I appreciate it.

Randy Udall was an energy analyst and commentator based in Carbondale, Colorado.

It was President Obama who used a national political campaign to promote the idea that there is a 100-year-supply of NG, not the Colorado School of Mines.

Lets put the blame where blame is due.

rockman on Wed, 30th Apr 2014 11:35 am

Lots of interesting thoughts. And none of them change the fact that even with the boom in shale drilling the US only produces 93% of the NG we consume and thus have to import the other 7%. I really don’t care to listen to any more of these optimistic projections. Let’s just wait until the US is at least producing as much NG as we consume. Then we can talk about perhaps becoming an exporter. Until then we are just wasting time discussing the issue IMHO.

marmico on Wed, 30th Apr 2014 12:29 pm

The “100 year supply” of natural gas meme aka “shale gale” originated with IHS-CERA (Yergin) in March 2010.

So Rockman needs to wait for the LNG trains to embark the Gulf. Too bad he doesn’t understand trade. Michigan is the big exporter, Montana is the big importer. Hmmm… Ontario is next to Michigan, Montana is next to Alberta. Alberta is a net exporter and Ontario is a net importer. LOL

Nony on Wed, 30th Apr 2014 1:11 pm

Based on the pricing and supplies, it’s very reasonable to believe that the US will become a net exporter once the physical infrastructure is permitted and built. It doesn’t take a lot to believe in it. And the teensy bit of Canadian net gas coming into the US…who cares. Where do you expect it to go? It just becomes that much more of the share battle. Also, there’s some interesting issues of geography/infrastructure (like Canadian gas has an easier time getting to Boston than Marcellus gas (which may ship out of Cove Point, MD instead. Some features in Alaska and Oregon also. Opening the export capacity across the country, doesn’t need to wait for us to cram that Canadian gas back from Boston (building extra pipelines to do so).

rockman on Wed, 30th Apr 2014 2:06 pm

“…it’s very reasonable to believe that the US will become a net exporter once the physical infrastructure is permitted”. Regardless of how much LNG export terminals you build and the whatever the price of NG may be in the future how the hell does one become a NET EXPORTER when the US only produce 93% of the NG the country consumes.

marmico – It doesn’t make a bit of difference how many LNG tankers (BTW the LNG “trains” don’t move) leave the US it doesn’t make the US a NET EXPORER of NG.

Folks seem to be having a great deal of difficulty understanding a very simple metric: the US HAS NO EXCESS NG TO EXPORT. Which isn’t the same thing as saying that we won’t export LNG but that for every mcf of LNG we export we’ll have to import an mcf of NG to replace it less the US consumer doesn’t get want they require.

THE US DOES NOT HAVE EXCESS NG TO EXPORT. It’s a very simple and true statement

ghung on Wed, 30th Apr 2014 2:20 pm

Meanwhile,, Bloomberg:

Shale Drillers Feast on Junk Debt to Stay on Treadmill

….The U.S. drive for energy independence is backed by a surge in junk-rated borrowing that’s been as vital as the technological breakthroughs that enabled the drilling spree. While the high-yield debt market has doubled in size since the end of 2004, the amount issued by exploration and production companies has grown nine-fold, according to Barclays Plc. That’s what keeps the shale revolution going even as companies spend money faster than they make it.”

…and: Energy Future Holdings files for Chapter 11 bankruptcy – ” Dallas-based Energy Future Holdings filed for Chapter 11 bankruptcy protection early today after reaching a deal with creditors that calls for breaking off its power generation and retail arms in exchange for reducing debt. The bankruptcy petition was filed in Delaware.

The state’s largest power company, formed in 2007 with the $45 billion buyout of the former TXU Corp. led by KKR, Texas Pacific Group and Goldman Sachs, has been struggling under the weight of $40 billion in debt as its revenues have plunged with lower prices for natural gas and electricity…”

Just a willingness to swallow the lies and propaganda, hook line and sinker, right Nony? Just an ability to totally suspend disbelief and launch oneself into fantasy land — that’s all it takes.

Nony, you should read the “Shale Drillers Feast on Junk Debt to Stay on Treadmill” posted by ghung above. I read that article earlier this morning. Truth is, the whole “shale boom” fantasy is a totally bought and paid for phenomenon, definitely not self-sustaining, and its usefulness to TPTB (to keep you and others hyped up on false hope) has just about run its course. I pity you, Nony. Your wake-up call to reality when it comes knocking is going to be a brutal experience for you.

Nony on Wed, 30th Apr 2014 3:25 pm

Rockman, I’ve spelled out why your comments are flawed several times previously. I actually think you’re pretty good in general, so disappointed that you seem to confuse “excess”. We will never just make extra gas for no market and stick it in a room somewhere. But if there are buyers and a way to supply them…the gas will flow fine. (US will see a small price rise too. ;-))

P.s. You also went off about the 7% NG from Canada on a thread that was about natural gas liquids! And we certainly ARE a net exporter. And were not previously. So things can change, man.

MSN fanboy on Wed, 30th Apr 2014 4:45 pm

THE US DOES NOT HAVE EXCESS NG TO EXPORT. It’s a very simple and true statement

Yes, what you say is a lie

rockman on Wed, 30th Apr 2014 5:57 pm

Nony – As far as I recall the discussion dealt with LNG which has nothing to do with NGL except they both share the “NG” letter combination. LOL. And I don’t recall you pointing out any factual errors I offered. Please refresh our collective memories. Thanks in advance.

rockman on Wed, 30th Apr 2014 6:00 pm

MSN – If it’s a lie the tell us all the simple truth. We await with baited breath.

And while your at it you might explain why you think the EIA offers such lies.

Boat on Wed, 30th Apr 2014 8:01 pm

rockman
THE US DOES NOT HAVE EXCESS NG TO EXPORT. It’s a very simple and true statement

This is very true but charts like this is why that could change in the very near future.

I would also point out that the US ng isn’t as important as the N American ng outlook since through trade agreement the US Canada and Mexico all get the captured ng price not the world ng price. I think fracking will explode in Mexico as well as Canada ensuring more coal and oil replacement.

Nony on Wed, 30th Apr 2014 8:43 pm

The article was about NGLs (propane, butane, ethane, and such). Read the whole article from front to back. Look at the figure caption, etc. Sometimes, you react to things too quickly and don’t even engage with the content.